Lecture Project management in practice - Chapter 6: Estimating project, times and costs

CHAPTER 6
Estimating Project,
Times and Costs

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Learning Elements
6.1 Understand that estimating can be
carried out to differing levels of detail
and accuracy.
6.2 Apply any number of estimating
techniques to assist in scoping and
planning a project.
6.3 Understand the concept of contingency
versus padding.

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RECAP. Leading on from Step 4. Estimating:
Moving towards a draft budget and schedule

ESTIMATING

The journey from WBS to estimating and the creation of the budget
schedule and resource matrix
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Estimates are needed to:
– Support good decisions
– Determine whether the project is worth doing
– Determine how long the project should take and
its overall cost
– Schedule work
– Determine the resource required (human and
other)
– Develop time-phased budgets (cash flow)
– Establish the project baseline
– Determine how well the project is progressing

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What is being estimated?
• Resources
• Durations
• Costs

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Estimating Guidelines for
Time, Costs and Resources
Consider:
• Responsibility
• Use several people to estimate
• Normal conditions
• Time units
• Independence
• Contingencies
• Carrying out a risk assessment
• Cost of Quality (CoQ)
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Top-down versus Bottom-up
Estimating
Top-down approach
Are usually derived from someone who uses experience
and/or information to determine the project duration and
total cost.

Bottom-up approach
Can serve as a check on cost elements in the WBS by
rolling up the work packages and associated cost
accounts to major deliverables at the work package level.

Hybrid – phase estimating
Used when an unusual amount of uncertainty surrounds a
project and it is impractical to estimate times and costs for
the entire project.
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Methods for Estimating Project
Costs, Time and Resources
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Consensus methods
Expert judgment
Alternative analysis
Parametric estimating
Analogous method

3-point estimate

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Methods for Estimating Project
Costs, Time and Resources(cont.)
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Vendor bid analysis
Estimating tools and systems
Function point methods
Learning curves
Template methods
Range estimating

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Analogous Estimating
‘Analogous estimating is a technique for
estimating the duration or cost of an activity
or a project using historical data from a
similar activity or project.
‘Analogous estimating uses parameters from
a previous, similar project, such as duration,
budget, size, weight, and complexity, as the
basis for estimating the same parameter or
measure for a future project.’
(PMI 2013, p. 169)
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Parametric Estimating
‘Parametric estimating is an estimating
technique in which an algorithm is used to
calculate cost or duration based on historical
data and project parameters.
‘Parametric estimating uses a statistical
relationship between historical data and other
variables (e.g. square footage in construction)
to calculate an estimate for activity
parameters, such as cost, budget and
duration’.
(PMI 2013, p. 170)
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Three-point Estimate
Also known as the PERT method.

Optimistic + (4 x Most Likely) + Pessimistic
6

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Summary of Estimating Tools

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Level of Detail in Estimating
The estimating trumpet

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Refining Estimates
Reasons for adjusting estimates
• Interaction costs are hidden in estimates.
• Normal conditions do not apply.
• Things go wrong on projects.
• Changes in project scope and plans.

Adjusting estimates
• Time and cost estimates of specific activities are
adjusted as the risks, resources and situation
particulars become more clearly defined.
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Key Terms
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3-point estimate
bottom-up estimates
contingency
Cost of Quality (CoQ)
Delphi Method
direct costs
estimating tools
function points
indirect costs (G&A or overhead costs)
learning curve
padding estimates
PERT method
phase estimating
range estimating
templates
top-down estimates
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